08-Aug-17

Key Highlights of the Report:

52wk Range H/L

Mkt Capital (Rs Cr)

Av. Volume (,000)

Financials/Valu

ation

FY15 FY16 FY17 FY18E FY19ENet Sales 4,37,526 3,47,165 3,59,873 3,80,052 3,85,906

EBITDA 10,147 21,057 31,781 33,563 34,080

EBIT 5,618 16,117 25,558 26,205 26,168

PAT 5,273 10,928 19,106 20,111 19,930

1QFY18 4QFY17 3QFY17 EPS (Rs) 11 23 39 41 41

Promoters 57.3 57.3 58.3 EPS growth (%) -25% 107% 75% 5% -1%

Public 42.7 42.7 41.7 ROE (%) 8% 12% 19% 18% 16%

Total 100.0 100.0 100.0 ROCE (%) 6% 14% 21% 20% 18%

BV 140 181 205 231 255

P/B (X) 1.3 1.1 1.9 1.7 1.5

1Mn 3Mn 1Yr P/E (x) 17.0 8.7 9.8 9.5 9.6

Absolute 9.4 51.1 41.1

Rel.to Nifty 5.3 34.3 15.4 RECENT DEVELOPMENT:

CMP 430

IndianOil and LanzaTech sign a Statement of Intent to Construct World's

First Refinery Off Gas-to-Bioethanol Production Facility in India.The work

at 40 MTPA facility will begin later this year for installation at IndianOil's

Panipat Refinery at an estimated cost of Rs.350 Cr.

IOC is facing violent protest at its newly proposed LPG terminal at

Puthuvypeen in Kochi which may delay its commissioning. The NGT, vide

its order of April 13, 2017, has reconfirmed its August 2016 order

permitting IOC to continue with the work.

Oil companies to bear merchant discount rate fees on debit card payments

for fuel. The fee is 1% on credit card transactions and 0.25-1% on debit

card transactions. 

We expect core GRM to remain under pressure due to uncertainities in the

crude oil prices.

Target Price 445

Previous Target Price 445

RoE to maintain over 16% in FY19E

2,09,435

600

Upside 3%

450/265

INDUSTRY - OIL MARKETING

BSE Code - 530965

NSE Code - IOCNIFTY - 10066

Weak operational performance has lowered GRM to 4.32 USD/BBL vs

9.98 USD/BBL in the same period in FY17.

Rupee appreciation against dollar and decline in crude oil prices remained

major concern in 1QFY18.

Management expects 60km Jharsuguda-Ranchi pipeline to be

commissioned in FY18 which will increase volume from Paradip refinery.

Currently, the stock is trading at 1.5x FY19E P/BV. We maintain

‘NEUTRAL' rating in this stock with the target price of Rs.445.

ADITYA GUPTAaditya.gupta@narnolia.com

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

IOC keen to buy 26% stake in GSPC's Mundra LNG terminal. With a view

to expand its gas business, IOC invests Rs. 4500 Cr in Mundra project.

Company Data

Stock Performance %

Shareholding patterns %

7%8%

11%

8%

12%

19%18%

16%

0%

5%

10%

15%

20%

25%ROE

65

75

85

95

105

115

125

135

145

155

165

Jul-1

6

Aug-

16

Sep-

16

Oct

-16

Nov

-16

Dec

-16

Jan-

17

Feb-

17

Mar

-17

Apr-

17

May

-17

Jun-

17

Jul-1

7

IOC NIFTY

F

i

1QFY17 2QFY17 3QFY17 4QFY17 1QFY18 YoY % QoQ% FY16 FY17 YoY %

R

e

16 16 16 17 18 10% 4% 56 65 16%

M

a

20 19 20 21 23 10% 8% 80 80 0%

P

i

21 21 20 20 21 0% -2% 80 82 3%

N

e

86,081 80,370 93,102 1,00,338 1,05,434 22% 8% 3,47,165 3,59,873 4%

O

t

470 854 808 2,060 1,228 161% 155% 2,305 4,209 83%

C

O

63,701 66,330 73,872 79,673 87,825 38% 8% 2,89,365 2,83,576 -2%

E

m

1,772 1,872 1,813 4,202 2,414 36% 132% 7,019 9,658 38%

O

t

6,925 6,397 9,483 12,054 7,196 4% 27% 29,723 34,858 17%

E

B

13,684 5,772 7,934 4,409 8,000 -42% -44% 21,057 31,781 51%

D

e

1,435 1,505 1,554 1,729 1,721 20% 11% 4,940 6,223 26%

I

n

680 615 997 1,154 718 6% 16% 3,101 3,445 11%

P

B

12,039 4,507 6,191 3,585 6,788 -44% -42% 15,321 26,321 72%

T

a

3,770 1,385 2,196 (136) 2,239 -41% -106% 5,758 7,215 25%

P

A

8,269 3,122 3,995 3,721 4,549 -45% -7% 10,928 19,106 75%

Higher Inventory loss resulted into subdued bottom line :

EBITDA margin has delined by 160bps to 7.6% in 1QFY18 mainly due to higher inevntory

loss and lower GRM of 4.32 USD/barrel.

Profit after tax has declined by 45% to Rs. 4549 Cr in 1QFY18 as compared to Rs. 8269 Cr

in the same quarter in FY17 on account of lower refining margins and higher depreciation.

GRM for the quarter is 4.2 USD/barrel vs 9.98 USD/barrel on account of crude price

fluctuations and lower yields.

Compay has reported marketing volume of 20.73 MMT in the Q1FY18, a muted growth of

2% YoY. This muted growth is led by lower demand of Diesel.

Pipeline throughput has increased to 21.35 MMT in Q1FY18, growth of 7% QoQ. This

growth is on account of commissioning of Haldia Baruna pipeline which has been

commissioned in March 17.

Quarterly Performance

Revenue has increased by 22.5% to Rs. 105434 Cr in 1QFY18 as compared to Rs. 86081

Cr in the same quarter in FY17. Revenue has improved on account of increased refinery

throughput by 9% YoY.

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

10

,28

7

66

6

5,3

55

4,7

44

13

,68

4

5,7

72

7,9

34

4,4

09

8,0

00

10%

1%

6% 6%

16%

7%9%

4%

8%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

-

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

EBITDA(Rs. Cr.) EBITDA Margin

6,5

91

(45

0)

3,0

96

2,0

06

8,2

69

3,1

22

3,9

95

3,7

21

4,5

49

6%

-1%

4%

3%

10%

4% 4%4%

4%

-2%

0%

2%

4%

6%

8%

10%

12%

(1,000)

-

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

PAT(Rs. Cr.) PAT Margin

Volume Trend GRM Trend (USD/barrel)

View & Valuation

Slow down in the volume growth – The demand of the diesel has decreased in the

month of June by about 9%. We expect demand of Diesel to remain sluggish in the

near term due to heavy rain in this year. Volume remains the key concern for the

growth of the company and considering less scope of growth, we are cautious on

volume growth.

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

Investment Arguments:

Higher Utilisation at Paradip refinery limits volume growth- At present Capacity

utilization at paradip refinery is 85% which indicates that volume offtake from paradip

refinery has already stablized and there is limited scope for volume growth going

ahead.

LPG pipeline- The company is on track to construct 710km Paradip-Haldia-

Durgapur LPG pipeline, which will facilitate LPG transportation from Paradip and

Haldia to the LPG bottling plants at Balasore, Budge-Budge, Kalyani and Durgapur.

Lower Operational Efficiency- In Q1FY18, IOC has posted GRM of 4.32

USD/barrel vs 9.98 USD/barrel due to uncertainities in the crude price and lower

yields. Considering the current crude price fluctuations we expect GRM to remain

under pressure going ahead.

Indian Oil is the largest petrochemical company with the 35% of the India’s total refining

capacity. The company with its strong distribution network of 25000+ outlets, caters about half

of the petroleum demand of India. In Q1FY18 company has posted revenue of Rs. 1,05,434 Cr.,

growth of 22% YoY where as PAT declines by 45% YoY to Rs.4549 Cr. GRM for Q1FY18 is

4.32 USD/barrel vs 9.98 USD/barrel in same period of FY17. We have been positive on IOC for

more than a year on account of the projected volume growth arising out of paradip refinery and

also enhanced GRM due to the new capacity at Paradip that is able to process high sulphur

content effectively. Recently, the paradip’s capacity utilisation has reached 85% which suggest

that volume growth story will now go on backfoot. Also, the high GRM that IOC has been

commanding over other refineries due to its new plant should now get stable. Hence we revise

our rating from BUY to NEUTRAL keeping the target price intact at Rs445/-. Currently stock is

trading at 1.7x FY19’s Expected Book value (BV).

Upcoming Projects- IOCL is investing Rs 34,000 Cr. on the petrochemical complex.

The entire petrochemical complex is expected to be commissioned by 2021. The

polypropylene unit would have a capacity of 7,000 kilo tonne per annum (KTPA)

would be integrated with the oil refinery.We expect volume offtake from FY22

onwards.

21 19 20

21 20 19

20 21

23

14 14 14 14 16 16 16 17 18

-

5

10

15

20

25

Marketing Volume(MMT) Refinery Throughput(MMT)

10.8

0.9

6.0

3.0

10.0

4.3

7.7

8.9

4.3

8.0

6.3

8.0 7.7

5.0 5.1

6.7 6.0

5.5

-

2.0

4.0

6.0

8.0

10.0

12.0

IOC GRM Singapore GRM

Income Statement in Rs Crores Cash Flow Statement in Rs Crores

Y/E March FY16 FY17 FY18E FY19E Y/E March FY16 FY17E FY18E FY19E

Revenue from Operation 3,46,045 5,81,260 6,05,700 6,09,900 PBT 17,259 27,315 27,506 27,534

Change (%) -23% 68% 4% 1% (inc)/Dec in Working Capital 26,295 37,885 38,742 39,511

EBITDA 23,443 34,013 35,200 36,312 Non Cash Op Exp 5,865 6,849 7,984 8,538

Change (%) 122% 45% 3% 3% Int Paid (+) 3,630 3,721 3,252 3,439

Margin (%) 7% 6% 6% 6% Tax Paid 3,250 7,570 7,775 7,874

Depr & Amor. 5,698 6,849 7,984 8,538 others 7,724 (5,449) 1,842 4,836

EBIT 17,745 27,164 27,216 27,774 CF from Op. Activities 27,020 23,652 32,492 36,176

Int. & other fin. Cost 3,469 3,721 3,252 3,439 (inc)/Dec in FA & CWIP (4,244) (13,332) (20,226) (25,626)

Other Income 2,186 3,872 3,525 3,199 Free Cashflow 22,776 10,319 12,266 10,550

EBT 16,462 27,315 27,489 27,534 (Pur)/Sale of Inv 629 - - -

Exp Item 1,364 - - - others (10,190) (12,129) - -

Tax 5,658 7,570 7,787 7,881 CF from Inv. Activities (13,805) (25,461) (20,226) (25,626)

Minority Interest 246 640 - - inc/(dec) in NW

Reported PAT 12,413 20,385 19,703 19,653 inc/(dec) in Debt (4,175) 10,681 - -

Adjusted PAT 11,518 20,385 19,703 19,653 Div Paid (inc tax) (3,590) (7,494) (7,706) (7,809)

Change (%) 153% 64% -3% 0% others (4,661) (3,721) (3,252) (3,439)

Margin(%) 4% 4% 3% 3% CF from Fin. Activities (12,426) (535) (10,958) (11,248)

Inc(Dec) in Cash 789 (2,344) 1,308 (698)

Add: Opening Balance 1,225 735 330 744

Balance Sheet in Rs Crores Closing Balance 2,014 (1,609) 1,638 46

Y/E March FY16 FY17 FY18E FY19E

Share Capital 2,370 4,739 4,739 4,739

Reserves 87,610 97,357 1,09,317 1,21,430 Key Ratios

Networth 89,980 1,02,096 1,14,056 1,26,169 FY16 FY17 FY18E FY19E

Debt 48,149 58,830 51,967 54,700 ROE 14% 20% 17% 16%

Other Non Cur Liab 678 752 752 752 ROCE 15% 21% 20% 18%

Total Capital Employed 1,38,129 1,60,926 1,66,023 1,80,870 Asset Turnover 1.5 2.1 2.2 2.1

Net Fixed Assets (incl CWIP) 1,26,251 1,32,735 1,44,977 1,62,065 Debtor Days 8 9 9 9

Non Cur Investments 24,089 36,218 36,218 36,218 Inv Days 41 63 - -

Other Non Cur Asst 2,605 3,148 3,148 3,148 Payable Days 23 31 31 31

Non Curr Assets 1,57,820 1,76,951 1,89,187 2,06,274 Int Coverage 5 7 8 8

Inventory 42,257 65,884 60,920 60,920 P/E 8 9 10 10

Debtors 7,685 8,899 9,217 9,514 Price / Book Value 1.1 1.8 1.7 1.5

Cash & Bank 735 330 557 24 EV/EBITDA 5 6 6 6

Other Curr Assets 3,870 3,622 3,647 3,669 FCF per Share 24 21 25 22

Curr Assets 73,696 96,551 89,558 86,534 Div Yield 2% 3% 3% 3%

Creditors 24,337 31,170 32,295 33,348

Provisons 12,491 22,292 29,123 29,123 Key Assumptions

Other Curr Liab 10,193 13,475 8,312 9,342 FY16 FY17 FY18E FY19E

Curr Liabilities 64,208 79,612 85,037 87,887 Refinery Throughput (MT) 56 65 70 70

Net Curr Assets 9,488 16,939 4,521 (1,353) Pipeline Throughput (MMT) 80 82 86 86

Total Assets 2,31,555 2,73,561 2,78,745 2,92,809 Marketing Volume(MT) 80 80 79 79

Financials Snap Shot

Narnolia Securities LtdPlease refer to the Disclaimers at the end of this Report

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Road | Kolkata-700 020 , Ph : 033-40501500

email: narnolia@narnolia.com,

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